Asset Finance in NZ: Secured Loan, Lease or Hire Purchase?

Why businesses finance assets instead of paying cash

Paying cash for a vehicle or machine is simple, but it ties up working capital in an asset that loses value from the day you buy it. Asset finance spreads the cost over the asset's useful life, so the machine pays for itself out of the work it does — and the cash stays in the business for wages, stock and the months when invoices are paid late.

The question is less whether to finance and more which structure. In New Zealand the three you'll most often be offered are a secured loan (often called a chattel mortgage), a lease, and hire purchase.

The three structures at a glance

Names vary between lenders, and some products blend features. Read what the contract says about ownership and the end of the term, not just the product name.

Tax and GST: ask your accountant, but know the questions

Tax treatment is often what decides the structure, and it depends on your business, the asset and the exact contract. We work alongside your accountant on this rather than in place of them. These are the questions worth asking:

• Can I claim depreciation and interest? When your business owns the asset, depreciation and interest are generally the deductions. With an operating lease, the lease payments themselves are usually the deduction instead.
• When do I claim the GST? If you're GST-registered and buy the asset, you can generally claim GST on the purchase price up front. Under a lease, GST is typically charged on each payment instead.
• Is this lease treated as a lease for tax? Some leases are treated by Inland Revenue as if you'd bought the asset, which changes the deductions. Your accountant can tell you which side of the line a contract falls on.
• What happens if I sell the asset early? Depreciation recovered on sale, payout figures and any break costs all affect the real cost.

Inland Revenue's guidance on business assets and depreciation is the official reference.

What lenders look at

Asset finance is assessed differently from a home loan. The asset itself is security, so its type, age and resale value matter as much as your income.

• Trading history. How long the business has been operating, and its recent financial statements. Newer businesses can still get finance, but usually with fewer lenders to choose from.
• The asset. Mainstream vehicles and equipment with an active resale market are easier to finance than specialised or very old machinery.
• New or used, dealer or private. Some lenders are more comfortable with dealer sales; private purchases may need extra checks on ownership.
• Deposit or trade-in. Not always required, but it can widen your lender options and improve your terms.
• Your other borrowing. Existing business debt, tax arrears and personal guarantees all feature in the assessment.

Matching the term to the asset

A common mistake is choosing the longest term to get the lowest repayment, then still paying for a vehicle years after it has been replaced. As a rule of thumb, the finance should finish before the asset stops earning its keep.

Some loans offer a balloon or residual — a lump sum due at the end — to reduce the regular repayments. That helps cash flow, but plan for the lump sum: you'll need to pay it, refinance it, or sell or trade the asset to clear it.

How we help

We arrange asset and equipment finance for NZ businesses alongside their property lending, so the full picture — business debt, home loan and any rentals — is considered together. Tell us what you're buying and we'll explain which structures make sense and which lenders suit your trading history, then work with your accountant to settle the tax side.

More on the service: asset and equipment finance.

This article explains how New Zealand lenders generally assess these situations. It is general information, not personalised financial advice, and lender policy changes often — check your own position with a registered adviser. Official sources: Reserve Bank of New Zealand for lending policy and the OCR, and Sorted.org.nz for independent government-backed money guidance.